Los Angeles Set to Rival Chicago With Highest Sales Levy

By James Nash -
Nov 20, 2012

Los Angeles shoppers looking for
just the right satin blindfold or Whip Me stockings at Agent
Provocateur’s lingerie boutique on Melrose Avenue may soon pay
as much tax as customers at the company’s Gold Coast store in
Chicago, and more than at the one on Madison Avenue.

The City Council, which faced $1.6 billion in deficits over
the past four years, voted 11-4 today to ask residents to boost
the local sales tax 0.5 percentage point, bringing the total
levy -- local and state -- to 9.5 percent. That would tie Los
Angeles with Chicago for the highest rate of the 10 largest U.S.
cities. New York City is 8.875 percent.

“Our approach to dealing with our budget shortfalls has
been to cut,” said Edward Johnson, a spokesman for City Council
President Herb Wesson, who backed the sales tax proposal. “If
we continue to cut, we will drastically affect the services that
we deliver to our citizens.”

California’s municipalities have struggled to stay afloat
by curtailing staff and services amid falling revenue and rising
employee costs. The second-biggest U.S. city by population can’t
impose higher sales taxes without going to the voters of Los
Angeles, and is limited in raising real-estate levies under the
1978 law known as Proposition 13.

The tax increase would affect more than London-based Agent
Provocateur, owned by 3i Group Plc (III), Britain’s biggest publicly
traded private-equity firm. The company, which sells stockings
with “Whip Me” spelled out in the backseam for $70, opened its
first U.S. outlet on fashion boutique-lined Melrose Avenue in
Los Angeles.

Cars, Clothing

In addition to clothing, the tax would apply to cars,
prepared food, nonprescription drugs, household goods and other
merchandise. A vote last week showed a more than 2-1 advantage
for tax supporters on the City Council.

The proposal will go on the March ballot. That would be
just four months after voters approved Proposition 30, boosting
the statewide sales levy to 7.5 percent from 7.25 percent, with
proceeds earmarked for education.

The total state and local sales tax in Los Angeles is now
8.75 percent. Beginning in January, the new state levy will
raise that to 9 percent. The city’s proposed increase would
bring the total to 9.5 percent. That would equal Chicago and be
higher than the rest of the 10 largest U.S. cities, according to
data from the Tax Foundation, a nonpartisan research group based
in Washington.

Mayor Antonio Villaraigosa, a Democrat, said the city’s
proposed increase would raise more than $200 million a year in
additional revenue, closing most of a $216 million gap in the
budget of $7.2 billion for fiscal 2013. The alternative, he
wrote in a letter to council members, would be to fire as many
as 500 police officers.

Further Cuts

With the passage of Proposition 30, “It is clear that
voters were unwilling to accept further deep cuts in education
and other critical programs,” the 59-year-old mayor said.

In an e-mailed statement after the council vote,
Villaraigosa said he wouldn’t fashion next year’s budget around
the assumption that voters will approve the higher tax.

“We must tie new revenue to new reforms,” he said.

Two City Council members who are running to replace the
termed-out Villaraigosa were among the four to vote against
putting the tax proposal on the ballot: Eric Garcetti and Jan Perry.

Villaraigosa premised his support of the tax on City
Council approval of changes in the money-losing city zoo and the
convention center, perhaps putting them under private management
to save money, as well as eliminating 209 non-police jobs.

‘Pension Tax’

Former Mayor Richard Riordan, an 82-year-old Republican who
is campaigning to replace guaranteed city pensions with 401(k)-
type retirement plans, considers the proposed sales tax increase
a “pension tax,” spokesman John Schwada said. The city
contributed $342 million toward employee retirements this year,
according to a report by City Administrative Officer Miguel Santana.

“This is a tax to support, care and feed an outdated,
broken pension system,” Schwada said. “To say this is about
saving 500 police jobs is malarkey.”